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A will is a legally enforceable document that controls how your property will be distributed and your bills paid when you die. If you have children, you will will also nominate someone to be their guardian until they become adults.

2. Why do I need a will?

A will helps you make decisions about how you would like your real estate and personal property (collectively known as your “estate”) distributed after your death. Without a will, your property will be distributed by the courts through a process called intestate succession. Depending on the size of your estate, this process can be complicated, expensive, and time-consuming.

3. What is required for a will to be valid?

State laws govern the formalities that must be followed in order for a will to be considered valid and enforceable and many states have different requirements. Under Massachusetts law, a person writing a will (known as the “testator”) must be at least 18 years old, and competent to make decisions about his or her property. The will must be witnessed by two people who sign in the presence of the testator, and the will must be in writing.

4. Is a will the same thing as a “living will?”

No, it is not. A living will is a written statement of whether you would want extraordinary medical treatment if you were injured and not able to communicate with your doctors. A living will can be a useful part of your Advanced Health Care Directive (although a living will is not legally binding in the Commonwealth), but it should not be confused with a will, which only becomes effective if you die and therefore does not have anything to do with health care decisions.

5. Do I need an attorney to write a will?

A will is just one component of a well-drafted estate plan, which may include advanced health care planning, powers of attorney, and trusts. Even for modest estates, there are usually complicating factors that might make it a good idea to check with an attorney. Many estate planning attorneys charge a flat fee, so you know exactly what you are going to pay going in.

By the time my son was born, I was already an attorney with several years of practice behind me. I had a mortgage, a 401K, and student loan debt. I was a responsible professional with my own office (and a DOOR), clients who respected my opinions, and even an assistant who (sometimes) would screen my phone calls. I was, by all markers, a competent adult. And yet, as I held my son’s six pound body in my arms for the first time, I remember thinking that I was totally unprepared to keep this tiny human alive and safe.

It’s a feeling I think that all parents have had. The “what now?” and the “what if?” can become overwhelming. The good news is that creating an estate plan can give you peace of mind that if the worst were to happen, you would still be able to provide for and protect your tiny human.

So, how do you get started?

Understand your options.

To quote the great bard Neil Peart of Rush (yes, I’m an Old), “If you chose not to decide you still have made a choice.” For estate planning purposes, this means that if you pass away without an estate plan, the Commonwealth of Massachusetts will gladly provide you with its plan. And in many respects, it’s perfectly adequate for many people. As long as you don’t think your descendants will mind a lengthy, expensive, and public probate process, and don’t mind a judge appointing a guardian for your children three to six months after your death…yeah…maybe that’s not the best idea.

In all seriousness, creating your own estate plan gives you control over your estate and can keep proceedings private and efficient to protect your assets and your children. In essence, an estate plan is nothing more than a set of instructions that will govern who will be responsible for your children and how your material possessions are to be distributed.

There are multiple parts to even the most simple estate plan. Some parts (live a living trust or power of attorney) may become effective immediately, while others only become effective if you become incapacitated (such as an advanced directive or “living will”), or after your death. While a good attorney will take time to discuss your options with you, it never hurts to do some research on what you think you might want for yourself.

Talk about your wishes with your spouse or partner.

It’s important that your spouse or partner understand what your goals are in writing your plan. Do they understand how you would want your assets distributed and debts paid? Are you on the same page about who would be responsible for your children if you were both to die? Just talking about these issues is difficult for some people, so be patient with your partner. Attorney Laura K. Meier has written a good conversation-starting guide on this subject, Good Parents Worry, Great Parents Plan: Wills, Trusts, and Estate Planning for Parents of Young Children.

Single parents may have different concerns regarding their children, including what rights they may have to make guardianship decisions in light of their co-parent’s parental rights. Single parents may also have special needs regarding trust creation to safeguard their children’s financial security. Finding a loved one (be it family or a close friend) you can talk to about these issues is an important first step to crafting your plan.

Find an attorney you feel comfortable with.

A quick Google search will reveal many companies out there that will provide estate planning documents for you at a low, low price… simply plug in a few detail and voila! Estate Plan!

But creating an estate plan is a deliberative process that may require considering changes to beneficiary designations on your 401K, or insurance documents. If you want to create a trust, either to minimize tax liabilities, or provide for a child with or without special needs, you should consider consulting with an attorney who understands estate planning law and possible conflicts that could render your trust ineffective.

Many attorneys charge a flat fee for estate planning, which can vary depending on the complexity of the plan. As a prospective attorney if he or she offers a risk-free consultation where you can ask about the specifics of your situation. Make sure you find someone who understands your goals, and who you think you can work well with.

Just do it!

Often, my clients will go through the entire process of creating a living trust to fund their children’s education, contact financial planners to transfer ownership of investment accounts, identify their health care agent and craft a thoughtful statement of wishes regarding health care treatment, only to balk when it comes time to identify potential guardians for their children.

Nominating a guardian can be a paralyzing choice – but it doesn’t have to be! Even though there is no one as well suited to take care of your kids as you, by choosing someone you know who is responsible and who loves them, you have created the best possible scenario for your children. Creating a plan removes uncertainty because you now know that, in the unlikely event of your death, you children will be provided for emotionally, physically, and financially, immediately and for years to come.

Tell Someone About Your Plan

The best estate plan is totally useless if no one knows where it is. Many attorneys will safeguard your estate plan for you at their offices. This can be beneficial, especially if you are concerned about elements of your plan that have an immediate effect, such as a power of attorney. Additionally, attorneys are bound by fiduciary responsibilities regarding the safekeeping of your documents.

Even if your attorney will safeguard the estate plan, make sure that someone other than you (and your spouse) knows the name and contact information of the attorney who wrote your plan. If you choose to maintain the documents yourself, make sure that they are kept in a secure location (such as a fireproof safe) and that someone other than a beneficiary knows how to access the documents.

Review and revise regularly

Your life is constantly changing and evolving, so your estate plan should too. Don’t assume that this is a “one and done” process. Review your estate plan on a regular schedule – maybe ever two years – and any time you experience a life changing event, such as the birth of a new child, a move, a career change, or a change to your marital status.

What if you were in an accident and were unable to communicate with your doctor? How would health care decisions be made for you? Would you want treatment with a respirator or a feeding tube? At what point would you want care to be withdrawn? What happens if you are pregnant when you lose capacity?

These are all scenarios that most of us don’t want to think about, especially when we are young and healthy. But statistics tell us that more than half of all women who die before age 35 are victims of sudden injuries. So while it may seem remote, it makes sense to spend some time thinking about how we can help our loved ones make medical decisions based on our personal values if we become unable to speak for ourselves.

The best method to make your intentions clear is with a well-crafted advanced directive. An advanced directive is a legally enforceable document that allows you to control how medical decisions will be made on your behalf if a doctor determines, through specific medical criteria, that you can’t communicate your wishes. Advanced directives, which are available in all 50 states, take two forms: a living will, or a health care proxy.

A living will allows individuals to delineate the types of treatments they would or would not want in specific situations. For example, a patient may specify that she would not want a feeding tube to be placed if doing so would only prolong the dying process. Without a living will, a doctor may be required to provide treatment you would not want.

Massachusetts residents should know that that living wills are not enforceable in the Commonwealth, which means that doctors and courts do not have to follow them. Instead, Massachusetts law allows for the appointment of a person to act on your behalf as your agent in medical decision making. The document that provides for this appointment is called the health care proxy.

Provided you have communicated your wishes to your agent, a health care proxy can give you peace of mind that your wishes will be carried out, because a properly drafted health care proxy gives the person you choose near-absolute authority to make decisions for you. In addition to the health care proxy, you can also create a written “personal wishes statement” to help guide decision making. Although the personal wishes statement is not legally binding, it may be important if you believe that there could be differences of opinion among family members who might challenge the decisions of your health care agent.

In general, advanced directives only become effective upon a physician’s determination of incapacity. If you later become able to communicate your wishes yourself, your communicated intent will override any contrary instructions given in your living will or by your health care agent.

Specific medical and legal situations can affect the enforceability of advanced directives and laws in this area are evolving as our medical knowledge advances. For these reasons, it is a good idea to get experienced legal counsel when creating your advanced directive.

Many business owners looking to borrow money, buy a vehicle, invest in a franchise or sign a commercial lease are faced with the prospects of having to execute a personal guaranty.This is a difficult decision when the business owner weighs the advantages or necessity of the opportunity against the potential liability exposure associated with the personal guaranty.What’s at stake for the business owner?Everything essentially.

Most business owners set up the business on a strong legal foundation: they set up a corporation or LLC; purchase liability insurance coverage; review the applicable state and federal statutes regarding licensing, operating and owning a business in their industry; and making sure that their agreements with vendors and customers/clients are solid.This foundation is built with the goal of minimizing liability exposure both for the business and for its owners.

The personal guaranty erodes this liability protection, particularly with respect to the protection provided by a business entity.A corporation or LLC affords the owners with a liability shield and therefore a separation between their business and personal assets.The personal guaranty is a promise by the owners of a business that forfeits this protection.The bank, landlord or other creditor does not have to look solely to the assets of the business to satisfy any claim that they may have against the business owner should the business default on its obligations.The creditor can go right after the personal assets of the owner directly.

The problem is that in order to achieve many of these goals (i.e. having a space to operate the business, borrow money, purchase a franchise, etc.), the business owner is required to sign a personal guaranty.While it is never advisable to do so, many business owners have no choice in the matter.The good news is that there are sometimes strategies based upon the negotiating power of the business owner which can help mitigate the risks.These include limiting the scope or duration of the guaranty.For example, in the case of a commercial lease, an unlimited guaranty can be toned down such that the business owners are only responsible for the initial term of the lease or only to the extent of the actual rent owed to the landlord (i.e. it excludes attorneys fees, costs, and interest).

It is imperative that a business owner faced with this decision obtain appropriate legal advice prior to signing a personal guaranty.Given what it at stake, a few minutes on the phone or in a meeting with an attorney can potentially save the business owner thousands of dollars in personal exposure..

When a person starts a business, they often do not consider what happens if the business fails. For many business owners, the idea of starting a new business is a life-long dream that finally takes shape as they embark on this new venture. For some, they see and hear a tremendous amount of information about C Corporations, S Corporations and LLC’s. Everyone they speak with has an opinion about which type of entity is best. But what are the actual differences? What are the advantages of one entity versus another? Can a prospective business owner actually choose the wrong entity?

As a business owner, it is imperative that one protects his or her personal assets from the reach of business creditors. This should be one of the primary considerations when selecting a business entity that is appropriate for a business owner. That being said, there are often multiple types of business entities that will work equally as well for liability protection. To help differentiate the types of business entities, we have written a few brief summaries:

C Corporation: A C Corporation is a business entity that provides liability protection to the shareholders of the corporation. This type of corporation is taxed both on the income made at the corporate and shareholder level.

S Corporation: An S Corporation is a business entity that affords a liability buffer and provides “pass-through taxation”- which means that the income of the business passes through to the owner/investor of the company. There are also numerous and strict rules about who can be the owner of an S corp.

LLC: The LLC is analogous to the corporation in that it provides liability protection and pass-through taxation for the business owner. The LLC however provides more flexibility in the set-up and maintenance of the entity.

Partnership: A partnership is basically an agreement between two or more individuals or entities with a common purpose and an agreement to share profits and losses and management responsibilities. The general partnership however does not afford the partner with any liability protection.

The choice of business entity is not one that should be taken lightly. It is important to consult with an attorney and a CPA or tax advisor as there are both legal and tax implications for creating and operating each particular type of business entities.

Would you go to Vegas, belly up to a roulette wheel and bet the deed to your house, your retirement account and your personal savings and assets on Red? Probably not. But that’s not a far cry from signing a personal guarantee when you sign a franchise agreement.

Requiring a corporate (or LLC) franchisee to sign a personal guarantee has become the norm. It’s not without reason. Franchisors are concerned that franchises which are newly formed corporations (or LLCs) can too easily file bankruptcy to get out of their obligations if the franchise does poorly – leaving the franchisor with nothing. So, by requiring a personal guarantee from the officers or shareholders of the corporation (or the members of the LLC), the franchisor gets a little of the franchisee’s “skin in the game.”

However, signing such a personal guarantee frustrates the whole purpose for establishing the corporation (or LLC) in the first place – to shield your personal assets from the debts and obligations of your business. The good news is that as long as you adhere to the required corporate (or LLC) formalities, this “side-stepping” of the legal liability protection will only apply to the franchisor. It will not allow the rest of the world (i.e. customers, employees, the general public) to seek damages against you personally. But, as to the franchisor, you’re betting it all on Red.

What can be done? First and foremost, have a franchise attorney review the franchise agreement, the personal guarantee and any other agreements required by the franchisor. Even if you don’t have a separate personal guarantee, comparable language can often be found couched in the text of the franchise agreement itself. Not uncommonly, franchisors will require that you sign the franchise agreement as an individual (thereby putting you personally on the hook for all of the obligations therein), and then transfer ownership/operation to your corporation (or LLC). The transfer agreement may very likely contain language specifically stating that you, the individual, are not relived of the obligations to which you agreed, regardless of the transfer. Personal guarantee language can also pop up in agreements to sell or transfer ownership to a third party, if you decide to sell your business. In no circumstance should you agree to guarantee the performance of a buyer of your business!

Once reviewed, you can try to negotiate the language and terms of the guarantee, or try to have it eliminated in its entity. Setting caps on recoverable damages, creating a list of “off-limits” assets, or even an expiration date for the guarantee are just a few options. Unfortunately, with most franchises, the agreements are “take it or leave it.” In that instance, you need to take what few steps you can to insulate your personal assets from the risk of exposure to your creditors, namely the franchisor.

In most states, you can file for a Declaration of Homestead for your primacy residence (some states apply this protection automatically by law). This will protect the equity value in your home, up to a set amount (i.e. in MA, your home is protected up to $500,000 if you file; $125,000 if you do not), and prevents a creditor from forcing the sale of your home to pay off your debt. Additionally, you can put investment or vacation properties into Real Estate trusts or Real Estate holding companies. Additional businesses that you may own should be held by separate business entities (corporations or LLCs).

In the end, your best bet is to avoid signing a personal guarantee whenever possible.

If you need more information or assistance with a franchise agreement, personal guarantee or other business contract, please call our office for a free initial consultation. 781-333-4182 Or visit us on the web: www.SigmanLaw.us.

Recent developments in MA law have made it virtually impossible to be a true independent contractor in Massachusetts. Many Massachusetts businesses unknowingly misclassify their employees as independent contractors.

According to M.G.L. c. 149 Section 148B, a person is considered an employee unless all of the following are true:

a. the individual is free from control or direction in the performance of his or her duties

b. The service being performed by the individual is performed outside the usual course of business for the employer

c. the individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed

These are factors and are weighed by a fact finder on a case by case basis. This means that should the classification of your workers ever be challenged, such a decision would be left to a judge after his or her careful review of the facts.

The misclassification of employees as independent contractors can carry severe civil and even criminal penalties. A willful misclassification is punishable by a fine of up to $25,000 or one year in prison. Even if you mistakenly misclassify an employee as an independent contractor, you can be subject to a fine of up to $10,000 and 6 months in prison. In addition to these statutory penalties, you can also be responsible for violating other state and federal statutes that have to do with minimum wage, overtime, income tax withholding, worker’s compensation insurance, employee record keeping, etc. In fact, failure to pay federal tax withholdings could lead to an audit by the IRS.

As you can see, it is often better to classify someone as an employee and pay the upfront costs than to be caught misclassifying employees further down the road. Many Massachusetts businesses have decided to convert their existing independent contractors to employees. However, this process can be a complicated process especially where a company’s workers have gotten used to a certain way of being compensated.

Please stay tuned for our next edition which will continue to educate business owners on the Massachusetts Independent Contractor Laws and some strategies to keep you out of trouble.

Four Reasons Why You Should Incorporate a Trust Into Your Massachusetts Estate Plan:

1. Assets Held In Trust Do Not Require Probate Court Administration. Probate Court administration is the process by which a decedent’s assets are re-titled and passed to his or her rightful heirs. A Last Will and Testament does not avoid Probate Court Administration, it only indicates your wishes to the Court.

3. Massachusetts Probate Administration is Time Consuming. The decedent’s records must be gathered. The Probate petition must be prepared and filed with the Probate Court. The Petition and ancillary documents must be reviewed by the Court. Notice must be given to all interested parties. The Court must again review the petition after notice has been given. Finally, if all goes well, an executor will be appointed. All of this routinely takes 3 months or longer.

4. It’s public. Massachusetts Probate administration is a public process. You likely keep your financial affairs private during your lifetime, but via Massachusetts Probate administration they become very public when you die.

If you have any questions regarding estate planning or probate administration, please do not hesitate to contact Michael J. Callahan, Esq. – Sigman Law Office, PC.

…..each charges the landlord $600.00 for his services. This sounds like the beginning of a joke, but it is not. What do these three vendors have in common? Each of them needs to be sent an IRS 1099 form by the landlord.

Prior to the passage of Small Business Jobs and Credit Act of 2010 (H.R. 5297), most small landlords were not considered to be “conducting a trade or business” and therefore were exempt from certain tax reporting requirements by the IRS. The IRS previously only required businesses such as full-time property managers to track and report payments to vendors. However, the new bill expands the definition of “conducting a trade or business” to include all property owners. Section 2101 establishes that, “a person receiving rental income from real estate shall be considered to be engaged in a trade or business of renting property”.

The new law requires that any person receiving rental income from real property must file a 1099 for all payments made to service providers in excess of $600.00. For larger landlords and rental property owners, this requirement to track payments to vendors is not new. H.R. 5297 now requires even owners of a single unit of rental property (such as a partially owner occupied multi-family property or as part of a self-directed IRA or other personal investment) to track and report payments to any vendor providing at least $600.00 worth of services or face stiff penalties. It is important to note that this is cumulative so if you hire someone to clean the property at a rate of $60.00 per month, the aggregate of the payments would exceed the $600.00 threshold.

H.R. 5297 does provide a couple of exceptions but they are naturally quite vague at this point. The exceptions are as follows:

1. If gathering the information and issuing a 1099 would be an undue burden or hardship.

2. If the rental is a temporary rental of your own residence.

3. If the income from the rental does not meet a minimum amount

The IRS hopefully will provide some guidance on what constitutes a hardship and the minimum income threshold. It is important that you stay up to date with these changes.

So for small landlords, you now have a legal obligation to obtain and keep certain information about your vendors. This information includes, but is not necessarily limited to, the name, address, and taxpayer ID of the vendor as wells as amount you pay them. Examples of vendors include electricians, plumbers, handymen, accountants, cleaners and pretty much any person or company that provides services to rental property owners.

As always, if you are running any sort of small business it is essential that you maintain detailed financial records. You should review your bookkeeping practices to ensure that you can accurately track payments made to vendors. It is also a good idea to have any vendor that you anticipate paying more than $600.00 this year provide you with a completed W-9 prior to beginning work on your property. Remember you will have until January 31, 2012 to issue a 1099 for those vendors so it is very important to be prepared ahead of time..

A trust is a legal arrangement where a “grantor” transfer legal title to property (e.g. real estate, investment accounts) to a “trustee.” The trustee holds the property for the benefit of the beneficial title holder or “beneficiary.” The trust sets forth the terms and conditions by which the trustee is to manage the property held in the trust. Most trusts have one set of beneficiaries during the grantor’s life and a different set after the grantor’s passing. Trusts can be established for a variety of purposes including avoiding probate, reducing estate taxes and providing creditor protection..